In the 1980s, respondent engaged in multiple real estate transactions financed by loans insured by the Federal Housing Administration, an agency within the Department of Housing and Urban Development. Respondent would purchase rental housing, renovate it, obtain an inflated appraisal, and sell it to a straw buyer for whom respondent would arrange an FHA-insured mortgage loan. Then, as prearranged, respondent would repurchase the property at a small profit to the straw buyer and assume the mortgage loan. Twenty-nine of these ventures went into default.
Respondent was charged by federal indictment with multiple counts of making false statements on federal loan documents in violation of 18 U.S.C. §1001. Two of these counts charged that respondent had made false statements on HUD/FHA form 92800-5 by knowingly inflating the appraised value of the mortgaged property. The other false-statement counts charged that respondent had made misrepresentations on HUD/FHA form HUD-1, the settlement form used in closing the sales of the properties. Line 303 of this form requires disclosure of the closing costs to be paid or received by the borrower/buyer and the seller. The forms executed by respondent showed that the buyer was to pay some of the closing costs, whereas in fact he, the seller, had arranged to pay all of them.
To prove the materiality of these false statements, the Government offered the testimony of several persons charged with administering FHA/HUD programs, who explained why the requested information was important. At the close of the evidence, the United States District Court for the District of Montana instructed the jury. The court stated that the issue of materiality was not submitted to the jury for its decision but was instead a matter for the court. The court further instructed that the statements charged in the indictment were material statements. The jury convicted respondent of the §1001 charges.
A panel of the Court of Appeals for the Ninth Circuit reversed these convictions. On rehearing en banc, the Court of Appeals stood by its precedent. The Supreme Court granted certiorari.
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